“The government is saying that it’s OK, so it’s OK. I’m sure if there was a risk, they would cancel the Canton Fair and let people know it wasn’t safe to come to Guangzhou. Look, Porter, I’m going and other senior managers are going too. If we don’t go, it’s like we are sending in the rank-and-file troops but not sending our generals. We all need to go in order to show support for our team.”
It made sense. If we were still going to participate, we couldn’t exactly stay back in Hangzhou while sending the entry-level staff. But I was disappointed with the decision. Sure, the Canton Fair was our most important sales event, and canceling our booth would have cost us money. But in this case it seemed a dangerous call. Still, I couldn’t blame Liqi—the national media were telling everyone in China that there was no need for widespread concern.
A few weeks later I was in Guangzhou helping run the Alibaba booth at the Canton Fair and shaking hands with buyers from Nigeria, Iran, Uzbekistan, the United States, and Latin America. If global trade was an engine of the global economy, these guys were the mechanics working under the hood. With sleeves rolled up and dirt on their hands, they lived in a world where every penny spent cut into their profit margin, and they had to constantly muscle their suppliers to squeeze out the best quality, at the best cost, and in the shortest amount of time. Battle weary from years of tough travel and negotiations, they were a far cry from the pampered investment bankers and management consultants I had gone to business school with.
That year’s Canton Fair was strikingly different from those of the past. Ordinarily it’s a lively hive of activity, with thousands of buyers and sellers shaking hands and sealing deals. But that year only one side of the equation had shown up—Chinese sellers. International buyers, for the most part, had stayed away. The divide between China’s state-censored media and the free press of the West could not have been more apparent.
As I chatted with the few buyers who trickled in, Kitty Song from the China Supplier sales team worked alongside me, chatting with local customers. Cheery and full of energy, she managed to greet each supplier even as she fought off a cough. With so few buyers to meet, the local exporters spent more time at the Alibaba booth exploring the Internet as a potential channel to overseas buyers, who apparently did not to want to travel to China.
Although our team delivered a record number of sales following the Canton Fair, I was relieved to be safely back in Hangzhou the following week. We’d tempted fate and survived. The gui hua (cassia) flower was in full bloom in my neighborhood, emitting a sweet fragrance that filled the air; I had a beer in one hand and a croquet mallet in the other. I was hanging out with some Westerners I’d met in my apartment complex. A local journalist happened upon us and interviewed me about whether I was worried about SARS. (With the media blackout on the epidemic now lifted, local news teams could finally report on it.) “No, I’m not worried about it,” I said. “I think it’s a bit overblown. In fact, I just came back from Guangzhou and didn’t experience any problems.”
Back in the office, Jack stopped by my desk. He had a mischievous look on his face, as he often did when he felt he was onto a big new idea.
“How are things going now that you’re back, Porter?”
“Things are good,” I said. “Liqi and I are working well together.”
“That’s great,” he replied. “Because the sales are strong and the company is doing really well. And I’ve made a decision that, in three years, people are going to say was the smartest decision we ever made.”
My curiosity was piqued. “Really? What’s that?”
“You’ll just have to wait and see. It’s a big one.” He smiled and walked away.
The following week was the May Day holiday, otherwise known as the Golden Week, when everyone in China is given a week off from work. I took advantage of the time to get to know Hangzhou a little better. A former capital of China, its main attraction is the West Lake, the subject of countless paintings and poems. By day families and friends gather on the banks to play cards and drink Dragon Well tea, freshly plucked from terraced tea fields in neighboring villages. At night students and young graduates escape their dormitories and cramped homes to sit on the benches along the perimeter of the lake, kissing in the darkness under the willow trees.
After seven days of my Hangzhou staycation, a part of me wasn’t ready to go back to work just yet. But when I suddenly got an extension, it was for all the wrong reasons.
“Porter, please don’t worry about coming in to work tomorrow,” the voice on the phone said. It was Monson, Alibaba’s head of HR.
“What? Why is that?”
“We’ve discovered that one of our staff might have been infected by SARS. So you and six other people can take the day off tomorrow. We’ll let you know when you need to come back in. Oh, and you’ll all be bei geli.”
“Bei geli? What does that mean?”
“Someone from the government is going to come by to lock your door from the outside. They just want to be safe, just in case.”
I realized I was about to be quarantined.
“By the way, Monson, which one of our colleagues was diagnosed with SARS?”
“Um . . .” he paused, not quite sure whether to tell me. “Kitty. Kitty Song.”
Gulp. Kitty Song? I had spent several days chatting with her, meeting the same people she did, working at her side in the trade show booth. I was worried for her sake but also my own. If she had SARS, maybe I did too.
The next morning I heard the sound of drilling outside my apartment door. And then the sounds of chains clinking. I was locked in.
I nervously contacted my parents to let them know I was under quarantine.
“Oh, the minute they let you out, please come home, Porter,” my mom pleaded. “I can’t bear the thought of having my only son over in China in the middle of SARS.”
I tried to reassure her that I wasn’t in harm’s way. I felt fine, after all. But in the back of my mind I was nervous. With ten days to go before I could be declared free of symptoms, it was simply a waiting game.
I received a call from a local government official who explained how the quarantine would work. Each day a nurse dressed in protective gear would arrive to disinfect my apartment. And I’d also receive two calls to check my temperature. Although I couldn’t leave my apartment, I could order any food I wanted, and the government would arrange for it to be brought over and left outside my door. This quarantine thing might not be so bad, I thought, and placed my first order—shrimp, broccoli, rice, and the ingredients to make a salad.
A couple of days later things took a more serious tone when Kitty’s status was changed from “suspected SARS” to “confirmed SARS.” With that the number of Alibaba staff members under quarantine grew from seven to 500—all employees at Hangzhou headquarters were locked in their homes, unable to come to the office. To keep the website running, 500 staffers carted their computers home and set up a virtual operation. Phones calls were rerouted to staffers’ homes, and parents and siblings helped out by answering the phone.
It was a grave time for the company but worse for Kitty. Whereas I was locked in a nice apartment complex receiving special care and attention as a foreigner, Kitty had been thrown into a stark hospital room with two other SARS victims, one of whom was quickly deteriorating.
But the challenge proved to be an important one for the company, binding the team together to both keep the website running and support Kitty. During the day the team continued to work, chatting online. At night and on the weekend, team members hosted virtual karaoke contests on the company’s Intranet.
Locked in my apartment, I had little to do during the day besides distract myself from health concerns by tinkering with the advertising campaign we were testing on Google’s search advertising platform. I had persuaded Liqi to grant me $600 to test on Google’s AdWords, and the initial r
esults were amazing. Our biggest headache had always been that we had no cost-effective way of reaching our niche business customers in 180 countries. But advertising on Google allowed us to generate targeted traffic from such obscure key terms as “China ball-bearing supplier.” From the Google ads we were suddenly generating targeted traffic from every corner of the Earth at five cents a click. My list of keyword ads quickly grew from six to 500. Could this be the breakthrough that we needed?
As Kitty slowly recovered, staff morale improved. Finally I heard the chains being removed from my door, followed by a knock. When I opened the door, I was greeted by camera flashes, police, and the local Communist Party secretary.
“You’re free to come out!” they said. After seven days of confinement, I bounded outside for some blue skies and fresh air. After calling my mother to let her know I was okay, I called Jack.
“I just got out too,” he said. “And they are telling me that Kitty is fine and should be out tomorrow.”
It was good news all around. Not only had we survived intact, but Alibaba had embraced the challenge laid in front of it. We had managed to keep the website running seamlessly in the face of disaster. In fact, traffic had skyrocketed, as the epidemic accelerated the adoption of e-commerce in China by providing a channel for buyers and sellers to connect without the need to meet face to face. If the true measure of a company is how it weathers a crisis, we had passed with flying colors. Good thing, because we were about to face our greatest challenge yet.
War on eBay
Back in the office, life returned to normal—at least, normal for China. Just as SARS was burning out, a massive heat wave strained Hangzhou’s electricity grid in the summer of 2003. Hangzhou had failed to grow its electricity supply fast enough to keep up with the number of factories and air conditioners added over the years, and we, along with other companies in the area, were forced to ration electricity. On hot days air-conditioning was not allowed, so the company had large ice blocks stationed in plastic tubs around the office; unfortunately this had little effect. And on the hottest days Hangzhou scheduled rolling blackouts, which meant our offices were shut down and staffers were sent home.
In the midst of all this Jack strolled into my office, once again flashing his mischievous grin. He shut the door behind him. “Porter, you know how I told you that we’d made a big decision about a month ago? Well, I’m ready to tell you now. And I’m going to need your help.”
He looked around to make sure nobody was listening, and after pausing for dramatic effect he let me in on his secret: “We’re going to war with eBay.”
Wow. eBay. We’d faced down large Internet companies before, but eBay was the largest e-commerce company in the world. Not only that, but eBay had invested in a Chinese company, Eachnet, which already had a dominant market share of China’s online auction market. “Okay,” I said. “How do we plan to do this?”
Jack told me: “I started looking at the market and realized that, pretty soon, eBay was going to try to get aggressive with its business in China. They’d start with consumers, but over time they will start coming after Alibaba’s wholesalers. Competition was inevitable. So I decided the only way we can slow them down is to launch a site to compete directly with their Chinese-language site.
“So last month, I pulled together six people in my office. I told them that I had a secret project for them. If they were interested in finding out what the job was, they would have to first resign from Alibaba and then move to work from a secret location. They couldn’t tell their friends or family what they were working on. They couldn’t even tell anyone at Alibaba what they were working on. I gave them a few minutes to think about it and told them that if they weren’t interested, they didn’t have to take the job. They could simply return to their position in Alibaba—there would be no hard feelings. A few minutes later they all came back to the room and said, ‘Jack, we’ll do it!’”
I smiled to myself as Jack related the story to me. Clearly it was an offer they wouldn’t refuse. But rather than simply assigning them to the new project, Jack had to make the whole process dramatic and exciting, as if shaping actual events for maximum drama ten years later. It might have been a bit over the top, but it was part of what made working at Alibaba fun.
“So after they signed the agreement,” Jack said, picking up his story, “I told them what the project was—to develop a consumer auction site to compete directly with Eachnet in China. And to build the site they had to go back to Alibaba’s roots—my apartment in Hupan Gardens. They worked on the site while everyone was in quarantine. They launched it a few weeks ago, and it’s really taking off.”
He leaned over my computer and said, “Here, you can see it. It’s called Taobao. It means, ‘search for treasure.’ Pull up Taobao.com.”
I typed it in and up popped a shopping website that felt like a cross between Alibaba.com and eBay. It was pretty basic and didn’t quite look like it was at the level of Eachnet. But I’d learned not to judge a work in progress, and for a website that had been up for only a few weeks, it was not bad.
“It’s going really well,” Jack continued. “The first users seem to love the site so far. And it’s funny, there are people coming up to me at Alibaba saying, ‘Jack, we should be really careful. There’s a new site called Taobao that really looks and feels like Alibaba. These guys could be really good competition someday.’ They have no idea `it’s our own site. This is going to be huge someday.”
Had it been three years earlier, I would have been a skeptic. But after seeing Jack’s predictions come true in our battle against our large B2B competitors, I’d come to believe that if Jack said it was possible, he was probably right. His intuition had carried us this far. It was better to just suspend disbelief and go along with it.
“So what help do you need from me?” I asked.
“We’re ready to launch Taobao. And when we do, we are going to declare war on eBay. The launch has to be a really big bomb to generate a lot of buzz in the media. I don’t want this to be a war between Taobao and Eachnet. It has to be about Taobao versus eBay. This is about Alibaba’s taking on Goliath.”
It was trademark Jack. Just as Alibaba had finally become stable and profitable, he wanted to bet the whole company on yet another huge dream. There was no challenge too big for this guy.
“So is everyone on board with this?” I asked.
“Joe and Savio are on board. One of our senior executives told me I was crazy and threatened to leave the company if I wanted to take on eBay,” Jack replied. “But after a while I convinced him as well. It looks like Masayoshi Son of Softbank will invest. He was going to invest before we got started but took too long to think about it, so we went ahead and started without him. Now, I told him, the price has gone up.
“So get ready, Porter. I know you are focused on Alibaba.com right now, but I’m going to need your help to make a big announcement soon. It’s really important that we get the foreign media to start writing about this to build some momentum. We need to engage eBay in a war of words, and the only way to do that is to get them to take notice of us back in the US.”
After Jack left my office I decided to head over to see the Taobao team for myself. I’d always slightly regretted not having been a part of Alibaba in its apartment days, so I decided not to miss the chance again. This could be historic, after all, and I wanted to see the secret Taobao operations with my own eyes.
I knocked on the apartment door, expecting to see a hive of activity as engineers, product developers, and website designers furiously prepared for the big launch. But it was just the opposite. It was the middle of the afternoon but the apartment was nearly empty, with the exception of two programmers sleeping on the floor next to a couple computers with black screens.
An engineer walked in from the kitchen, slurping from a bowl of noodles. “Where is everyone?” I asked.
“The power’s off again in the apartment complex. They all went home to rest.”
He went back into the kitchen, leaving me in the room with the two sleeping engineers. I imagined eBay’s team, far away in Silicon Valley, probably working away in slick, air-conditioned headquarters with rows of servers buzzing. Meanwhile we couldn’t even manage electricity. I couldn’t help but wonder whether this team was going to beat the most powerful Internet company in the world.
A week later Taobao was ready for its official debut. At a packed press conference in Hangzhou, we announced that we’d be investing $12 million in the company and that we’d build a consumer marketplace customized for China. It would be free for three years. Jack argued that China needed its own model for e-commerce and that with the market still in its infancy, it was too soon to charge customers.
“Today we’re not going to say how Taobao will make money. Taobao’s focus right now is on how to help develop e-commerce for individuals and how to provide good services for them. I believe the market is huge. If you look at the existing consumer websites in China, most of them just copy the American model,” Jack told the reporters.
Making Taobao free was a key way to differentiate it from eBay, which collected fees from its users. We gambled that eBay would not match our move, since doing so would expose it to intense pressure from Wall Street investors who expected eBay to quickly capitalize on the $180 million it had already invested in the market. Sure enough, immediately after our press conference, journalists contacted eBay to ask if it, too, would offer free services. Caught off guard, eBay’s local PR head responded by saying eBay would remain a website that charged, since charging for product listings and commissions was an important part of maintaining a healthy online marketplace. By the end of the day we had achieved our goal—we had backed eBay into a position that would be hard for it to change.
Taobao’s “free for three years” marketing push helped attract new users. This was particularly important in China’s low-trust environment, where people wanted to try something first before they had to pay for it. As our war of words heated up, eBay claimed to have a 95 percent share of the consumer market in China and pointed out to investors and media that eBay had never lost a market in which it had an established lead—the network effects of an online marketplace were simply too strong to overcome. However, eBay’s 95 percent market share represented only the ten million Internet users in China who had actually tried e-commerce. Ninety-nine percent of China’s population had yet to try buying anything online. And rather than try to attract eBay’s sellers at first, we simply focused on everyone else. Because we already had millions of customers using our English-language site and domestic Chinese B2B site, Alibaba China, we had a ready customer base of sellers who could easily add a new retail business to their thriving wholesale business.
Alibaba's World Page 7
